What is an FHA Short Refinance Program and How Does it Work?
Upside-down or underwater.
These aren’t words we normally like to use when we are talking about mortgages. But, as we all know, life happens. And occasionally we find ourselves in a less than ideal situation.
Such as having an upside-down or underwater mortgage.
This is when the pay off amount on a home is more than the home is worth. If you find yourself in this situation, don’t panic. There is help available.
How have FHA short refinance programs helped homeowners? Learn everything you need to know about this program and what it can do for you.
What is FHA Short Refinance
FHA short refinance is an assistance program being offered by the Federal Home Authority to homeowners who owe more than home is worth.
This means that the home would sell for less than what mortgage amount is. basically, the loan value is greater than the principle of the home.
Unfortunately with the crazy housing market the past few years. this is more common than you would think.
A short Refinance is actually beneficial for all parties involved. The homeowner gets a more manageable mortgage, and the bank gets a better chance at avoiding foreclosure.
How It Works
In order for an FHA short refinance to work, the borrower’s first lien holder must agree to write off at least 10% of their unpaid balance.
When the refinance is done, the borrower’s combined loan-to-value ratio can’t be greater than 115%.
Another requirement is the existing loan can’t be an FHA insured loan, and the new refinanced FHA-insured loan must have a loan-to-value ratio of no more than 97.75%
If there is more than one lien-holder on the property, the U.S. Department of Treasure and HUD will provide incentives for 2nd lien holders who agree to extinguish all liens.
This helps ensure the program is successful.
How to Qualify
There are a few requirements that need to be met in order to qualify for assistance. They include:
- Must be the homeowner’s primary residence
- Must be current on existing mortgage payments
- Can not be facing foreclosure
- Must have a credit score equal to or greater than 500
- All lien holders must agree to the refinance
If a homeowner can meet these guidelines they may be able to qualify for an FHA short refinance.
This is not an exclusive list, so if there are any questions about any of these items, contact your FHA short refinance loan officer.
What To Do Next
There are many advantages to looking into an FHA short refinancing. First of all, it allows homeowners to keep their house. That by itself should be enough reason to look into this option.
Homeowners will also get equity in their home, along with a lower mortgage payment. And if the timing is right, maybe even a lower interest rate. All very good things.
So, don’t hesitate any longer to call us to get started. We’re here to help with any FHA short refinancing questions.
And let’s see what we can do about that upside-down mortgage once and for all.
He is an experienced presenter on affordable housing topics including FHA, VA, and conventional home loan programs.
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